The rise and fall of California

Merry Christmas from California! Most of us have family and friends living in the West Coast. Some of us have had the privilege of visiting the sunshine state and enjoyed its gorgeous hills, valleys and coasts. For many Filipinos, immigrating to California remains a dream of a lifetime. Some 1.2 Filipino families call it home today.

California, by itself, is the fifth largest global economy, roughly the size of Germany. It is an oil producer, a manufacturer of military hardware, the world’s center for entertainment, an agricultural behemoth (a large-scale producer of wine, wheat, fruits, dairy products and meat) and ground zero for technology. California’s Silicon Valley is the birthplace of the transistor, the integrated circuit, the microprocessor and social media. Up until 2015, California was the proverbial center of the universe. Its products, services and ideas impacted our lives while it earned trillions of dollars in the process.

Things began to spiral downwards for California in the last eight years. In 2016, 1,800 companies moved to other cities, mostly Austin, Texas. This included blue-chip companies like Oracle, HP, Tesla and Aecom. The exodus has since accelerated to such a point where 12 corporate headquarters leave the state every month. Along with the exodus comes the loss of thousands of jobs, property, talents and high-income taxpayers.

San Francisco, in particular, is a shadow of its former self. The state accounts for half the homeless population in America. The state’s poverty rate is at 16.4 percent, nearly the same level as the Philippines. Its public education system has eroded so significantly that its drop-out rate is the 15th highest in the country.

Vast tent cities for the homeless have taken over parks and public spaces. There is squalor, joblessness and poverty all around.

What happened? Badly considered policies in the early 1970’s have led to astronomical cost of living – and this is the crux of California’s woes.

Let me backtrack to the 19th century to provide context. The year was 1848 and California was still a territory of Mexico. It had a population of 150,000 of which only 4.5 percent were white Anglo Saxons. That year, James Marshal struck gold in Coloma and this ushered in the largest wave of immigration. San Francisco was the main gateway for migrants and its population swelled 13 times in five years. San Francisco was the state’s first center for commerce.

Certain events contributed to making California rise as an economic powerhouse in the 20th century. The first was the discovery of oil in the San Joaquin Valley. This allowed the state to earn trillions from the production of oil, which peaked at four million barrels per day.

The second was Thomas Edison’s patent on film making. Edison was based in New York City and film producers moved to Los Angeles to stay as far away as possible from Edison’s auditors to avoid paying royalties. Southern California’s temperate weather and varied terrain made it ideal to shoot films of varying themes. This was the birth of Hollywood.

Irrigation projects such as the Central Valley Project and Los Angeles Aqueduct redirected water from the mountains to fertile areas, opening the way for agriculture to flourish. This was followed by the railways and highway system that connected the state to the Midwest. Irrigation and transport infrastructure allowed California to be a center for agro-industries.

California’s geographic position in the west coast made it an ideal for naval bases, airfields and ship building facilitates. California took 25 percent of defense spending and made it a center for defense technologies.

With its newfound wealth, California invested billions in higher education and the community college system. It bred its own talent for its thriving agriculture, film, defense, manufacturing and technology sectors.

All these conspired to make California the economic success that it was.

Fast forward to the 1970’s and the state government decided to devolve decision making to Citizen Advisory Committees (CAC’s). These CACs were composed of rich land and homeowners who dictated regulations relating to housing development. They discouraged mass housing and dense housing developments in favor of sprawling single-detached homes. Property taxes were also made unaffordable to the majority. This was done to keep the working class out, maintain exclusivity and property values in the city center.

The state now has a deficit of four million homes due to this ill-conceived policy. Scarcity has driven prices up by more a hundred-fold since then. California has the second lowest home ownership rate in America. Rental rates have skyrocketed, whereby an average worker typically spends 50 percent of his income on rent.

The policies of the CACs have pushed poor families outside the city center, which opened the way for segregation among classes. California is the fourth most unequal state. Impoverished neighborhoods are deprived of quality education.

The exodus of corporations has affected California’s economy. This triggered the state government to increase corporate income taxes and personal taxes for high-income earners. The rich are made to pay for California’s sustenance. Taxes derived from the top 0.5 percent constitute 40 percent of the state’s tax revenues.

High-income earners are taxed 13.3 percent by the state. Combine this with the 37 percent federal income tax and nearly 50 percent of income is taxed. This is another reason why most CEOs and top executives decided to move their headquarters out of California.

As corporations and their high-income executives move out due to high taxes, the more the state becomes desperate for cash. The more it is compelled to raise taxes. It is a vicious cycle.

California’s rise and fall is one that proves how badly considered policies can consign one of the wealthiest societies in the world to joblessness, homelessness and poverty.

Tax reform and a restructuring of the property sector is the only way to stop California’s hemorrhage. We hope the city comes around to implementing these reforms soon. Filipinos have a soft spot for California and we wish for her glory to be restored.

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Email: [email protected]. Follow him on Twitter @aj_masigan